Real Estate

A Father, a Daughter, and the Housing Market

David Stevens, chief executive officer of the Mortgage Bankers Association, has spent his career making the case for homeownership—crunching loan data, selling houses, and lobbying Congress to shore up the market in the chaos of the financial collapse. Yet one person still isn’t buying his pitch: his daughter. Sara Stevens, 27, understands that interest rates are low, rents are high, and a home can build wealth. But she also witnessed up close the worst real estate slump since the Great Depression. “The world has changed,” she says.

“We would drive around neighborhoods and he would point out houses. In my head, I always figured at the age of 27 or 28 I’d buy.”—Sara Stevens

Six years since the financial meltdown, a psychology of uncertainty has altered the homeownership calculation for young adults. It’s more than the weight of student loans, an iffy job market, and tight credit. Even those who can buy are hesitant. The doubt is so pervasive that it’s eroded entry-level sales. In May, the share of first-time buyers fell for the third month, to 27 percent of primary home purchases, according to the National Association of Realtors (NAR). Historically, it’s been about 40 percent. “We have a younger generation that has sat on the front lines of this housing recession,” says Stevens, 57. “They’re clearly being more thoughtful about it, and they’re clearly deferring that decision.”

Dad’s sales pitches started at age 4 for Sara, when she was big sister to a fussy newborn in San Ramon, Calif. To calm the baby, Stevens would load both girls into the family car. “We would drive around neighborhoods and he would point out houses,” chattering about curb appeal and prices, Sara says. “In my head, I always figured at the age of 27 or 28 I’d buy.”

She can if she wants to. She’s a legislative aide to Senator Michael Bennet (D-Colo.). Her fiancé is a software developer. Their combined income is $107,500, the car is paid for, and Dad is ready to help with a down payment.

The couple surf listings from their one-bedroom rental in Arlington, Va., which costs $2,195 a month, not including parking, utilities, and a $35 fee for Max the cockapoo. They have about $25,000 in student debt. Their rent-or-own conundrum is complicated by the location of their apartment, which is close to urban nightlife and steps from the subway. More affordable neighborhoods have higher crime and fewer amenities, or they’re in the suburbs and require a second car.

Sara was just out of college in 2009 when her dad was put in charge of the Federal Housing Administration (FHA). Part of his job was to lobby Congress not to dismantle the financial architecture that had made it possible for generations of Americans—including himself—to buy homes. Back then, he’d wonder aloud how the recession might affect Sara and her generation. Most of the millennials still aspire to own, though just 52 percent consider homeownership an “excellent long-term investment,” according to a survey from the John D. and Catherine T. MacArthur Foundation. Almost three-fourths of young adults in the poll say the U.S. is still in the throes of a housing crisis, a bigger share than any other age group. Millennial doubt is depressing the market—homeownership fell for the ninth straight year in 2013, to 65.1 percent of all households.

Stevens took the plunge in 1984, when he was Sara’s age and rates on a 30-year fixed mortgage averaged 13.9 percent. He paid $73,400 for a three-bedroom, one-bath rambler near Denver, assuming a 12.5 percent FHA mortgage with no money down. The seller owed more on the house than it was worth. “It was similar to the environment we’re in now,” Stevens says.

On paper, today’s young adults are better positioned to buy than those of an earlier generation. Affordability for entry-level buyers is more than twice as high, according to an index composed by the NAR using such data as interest rates, median income, and price. Mortgage payments as a share of income are half what they were in 1984, and unemployment among 25- to 34-year-olds is lower.

Yet student debt has more than tripled in 10 years, and laws passed since the financial crisis make it harder to get a mortgage. While most mortgage borrowers have an average credit score of 740, most young adults score below 700, according to credit tracker FICO.

It’s not lost on Sara that a cheer-leader-in-chief for homeownership can’t get a rah-rah out of his daughter. “I think that’s part of his worry,” she says. “If we’re still having this conversation, what’s it like for a whole generation of kids?”